The Food Security Bill (FSB) has evoked a very negative response from everyone. The politicians feel that the government is scoring brownie points through this measure keeping the elections in mind. The haggling is over having a discussion in Parliament and using the ordinance route, which, in turn, has been interpreted as dodging the systems. This is an issue where arguments could be on both sides. Economists are crying hoarse that the fiscal numbers will slip up badly and that everything will go wrong right from procurement, pricing policy, subsidy, deficit and selection. Let us look at this issue dispassionately.
The Bill addresses two-thirds of the population, which would be around 830 million (two-thirds of 1.24 billion). Is the number too large? If we look at World Bank’s data on poverty that goes by the definition of $2 a day, then the number of poor is roughly this number (68.8% in 2010). Why use $2 instead of $1.25? The answer is that this converted number at R110-120 is even lower than the wage being paid under MGNREGA which is above R135 in the low-end states. This means that the number we are talking of is has some justification. What does the FSB do? It says that 5 kg of foodgrains will be provided to each one of this group at a price ranging from R1 for coarse cereals to R2 and R3 for wheat and rice, respectively. Let us look at the physical numbers first. This allotment means 60 kg per year per person which multiplied by 830 million amounts to 49,800 million kg or about 50 million tonnes per annum. Evidently, to supply this amount, we have to use the existing fair price shops which are part of the PDS. If this number has to come from outside the system, then we need to ask whether or not our PDS has the infrastructure to reach out to these people, or else they would be left out anyway. What goes on in the PDS? The Food Corporation of India (FCI) website provides information on the off take of foodgrains—basically rice and wheat—which are handled by the organisation. In FY13, under the TPDS (targeted PDS), the supply of wheat was 22 million tonnes and wheat was 30 million tonnes. This amounts to 52 million tonnes. Besides, another 7-8 million tonnes were offered through various schemes of the government, which presumably will also get included under this new FSB dispensation. There were also open market sale of wheat. Therefore, the numbers we are talking of—around 60 million tonnes at the upper limit—may not be that large even if we assume that the present PDS may be seeing drawls of over 5 kg per head. In fact, under the present system, the BPL families get 35 kg per month and APL families 15 kg per month. Assuming a size of 5 per family in most BPL cases, it could be that some part has to be bought in the open market, which, however, is another issue. Also, the given stocks of foodgrains in the central pool are 77 million tonnes as per June 2013. As the FSB will be PDS-based, on the face of it there should not be much of an issue with the quantity of grain to be dealt with. An argument raised is that with such demand for foodgrains and the tendency to increase MSPs, there will be less grain the private market. But, the fault, so as to call it, is with the procurement policy of the government and not FSB as the procurement policy with MSP is aimed at protecting the farmer. Farmers will distort cropping pattern and grow and sell more rice and wheat even if FSB was not there. So, we should not mix the two issues. The other issue relates to the pricing of grains and the emerging subsidy bill. One must remember that even today we have a food subsidy which is broadly the difference between economic cost and issue price. The economic cost is driven by MSP and other incidentals and is outside the FSB. The issue price has been fixed historically and is anyway being charged. What the FSB does is lower the issue price and hence we need to look at this difference, which is the incremental cost. The economic costs will remain the same in normal course of procurement policy. The issue price now changes. Assuming we look at wheat and rice, which will average R2.5 per kg, we can guess the additional burden for the government. Now, the present issue price for rice and wheat varies depending on the type of household we are looking at. If we have to average that for rice it would be in the range of R5.8 to R8.3 or mid value of R7. In case of wheat the range is between R4.15 to 6.1 or an average of R5.1. Again, as an approximation, the average for the two would be around R6 per kg. The difference between the new average and existing average is R3.5 per kg or R3,500 per tonne. Let us also assume that all government schemes are covered under FSB and a total of 60 million tonnes is involved. The additional subsidy is around R21,000 crore which could go up to R25-30,000 crore if the averages assumed in this exercise are on the lower side. All this proves the following. First, there is some basis for the 800 million number and it is not random. Second, the physical demand for meeting this end is manageable even in the ordinary course. Third, the additional price subsidy involved is around R25-30,000 crore, which is not really abnormally high to generate panic. Fourth, we should not mix up issues of procurement, leakages or adverse targeting, which, though very critical, are not caused by the FSB. While the political undertones do evoke some debate, that should not cloud our vision when evaluating such a policy. At any rate, there is no need to get hyper about the FSB. It helps the needy and releases money for other consumption, which will help to improve standards as well as demand in the economy, which is missing today.
The Bill addresses two-thirds of the population, which would be around 830 million (two-thirds of 1.24 billion). Is the number too large? If we look at World Bank’s data on poverty that goes by the definition of $2 a day, then the number of poor is roughly this number (68.8% in 2010). Why use $2 instead of $1.25? The answer is that this converted number at R110-120 is even lower than the wage being paid under MGNREGA which is above R135 in the low-end states. This means that the number we are talking of is has some justification. What does the FSB do? It says that 5 kg of foodgrains will be provided to each one of this group at a price ranging from R1 for coarse cereals to R2 and R3 for wheat and rice, respectively. Let us look at the physical numbers first. This allotment means 60 kg per year per person which multiplied by 830 million amounts to 49,800 million kg or about 50 million tonnes per annum. Evidently, to supply this amount, we have to use the existing fair price shops which are part of the PDS. If this number has to come from outside the system, then we need to ask whether or not our PDS has the infrastructure to reach out to these people, or else they would be left out anyway. What goes on in the PDS? The Food Corporation of India (FCI) website provides information on the off take of foodgrains—basically rice and wheat—which are handled by the organisation. In FY13, under the TPDS (targeted PDS), the supply of wheat was 22 million tonnes and wheat was 30 million tonnes. This amounts to 52 million tonnes. Besides, another 7-8 million tonnes were offered through various schemes of the government, which presumably will also get included under this new FSB dispensation. There were also open market sale of wheat. Therefore, the numbers we are talking of—around 60 million tonnes at the upper limit—may not be that large even if we assume that the present PDS may be seeing drawls of over 5 kg per head. In fact, under the present system, the BPL families get 35 kg per month and APL families 15 kg per month. Assuming a size of 5 per family in most BPL cases, it could be that some part has to be bought in the open market, which, however, is another issue. Also, the given stocks of foodgrains in the central pool are 77 million tonnes as per June 2013. As the FSB will be PDS-based, on the face of it there should not be much of an issue with the quantity of grain to be dealt with. An argument raised is that with such demand for foodgrains and the tendency to increase MSPs, there will be less grain the private market. But, the fault, so as to call it, is with the procurement policy of the government and not FSB as the procurement policy with MSP is aimed at protecting the farmer. Farmers will distort cropping pattern and grow and sell more rice and wheat even if FSB was not there. So, we should not mix the two issues. The other issue relates to the pricing of grains and the emerging subsidy bill. One must remember that even today we have a food subsidy which is broadly the difference between economic cost and issue price. The economic cost is driven by MSP and other incidentals and is outside the FSB. The issue price has been fixed historically and is anyway being charged. What the FSB does is lower the issue price and hence we need to look at this difference, which is the incremental cost. The economic costs will remain the same in normal course of procurement policy. The issue price now changes. Assuming we look at wheat and rice, which will average R2.5 per kg, we can guess the additional burden for the government. Now, the present issue price for rice and wheat varies depending on the type of household we are looking at. If we have to average that for rice it would be in the range of R5.8 to R8.3 or mid value of R7. In case of wheat the range is between R4.15 to 6.1 or an average of R5.1. Again, as an approximation, the average for the two would be around R6 per kg. The difference between the new average and existing average is R3.5 per kg or R3,500 per tonne. Let us also assume that all government schemes are covered under FSB and a total of 60 million tonnes is involved. The additional subsidy is around R21,000 crore which could go up to R25-30,000 crore if the averages assumed in this exercise are on the lower side. All this proves the following. First, there is some basis for the 800 million number and it is not random. Second, the physical demand for meeting this end is manageable even in the ordinary course. Third, the additional price subsidy involved is around R25-30,000 crore, which is not really abnormally high to generate panic. Fourth, we should not mix up issues of procurement, leakages or adverse targeting, which, though very critical, are not caused by the FSB. While the political undertones do evoke some debate, that should not cloud our vision when evaluating such a policy. At any rate, there is no need to get hyper about the FSB. It helps the needy and releases money for other consumption, which will help to improve standards as well as demand in the economy, which is missing today.
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